MercoPress. South Atlantic News Agency

Unasur ready for potential balance of payments deficit caused by the North’s crisis

The moment to act as a group, said Colombian Finance minister Juan Echeverry

The Union of South American nations (Unasur), meeting in Peru Friday the region is well-positioned to withstand a sharper global downturn but want to insulate their economies further from a crisis of confidence they blame on Europe and the United States.

Although most central banks in the region have record holdings of foreign reserves, Unasur Finance ministers said they were considering using the Latin American Reserve Fund (FLAR) and the CAF development bank to help plug potential balance of payments deficits if they should arise during a weakening of the world economy.

They said specific measures would not be announced until at least August 12, when South American Finance ministers and central bankers meet in Argentina.

Latin America is “well-prepared for a possible worsening of the crisis,” Brazilian Finance Minister Guido Mantega said.

Debt defaults, hyperinflation and currency devaluations hobbled Latin America for much of the past century. But the region's economies have performed well over the past decade.

Many local policymakers now see themselves as symbols of fiscal and monetary rectitude and are aghast at what they see as the political foot-dragging and debt woes weighing on the US and European economies.

“The crisis of confidence is in the north, not the south,” Peru's Finance Minister Luis Miguel Castilla said.

“Countries have to be prepared for consequences that can arise, we must be united to create mechanisms for dealing with this situation,” Mantega said.

The Finance ministers hope to draw up concrete steps to help protect their economies, but have not detailed any plans.

“This is the moment for South America to act as a group ... and solidify our economies to face difficult events. We are in very stormy seas,” Colombia Finance Minister Juan Carlos Echeverry said.

Policymakers are also discussing how to manage inflows of hot money, as speculative cash is known, which has caused most currencies in the region to rally over the past few years.

That trend has allowed central banks to build up record foreign reserves to help withstand economic shocks by buying dollars on local foreign exchange markets. But it has also undermined the competitiveness of their exports.

Brazil this week announced a 16 billion dollars lifeline for manufacturers whose sales have plunged as consumers snap up imports made cheaper by a strong local currency. The Super Real is considered one of the world's most overvalued currencies and is trading at a 12-year high.